Chapter 13 Bankruptcy: Is Individual Debt Adjustment Right for You?

Bankruptcy can be a scary word to many consumers. Some envision men in gray overalls carting off their every possession for sale before debts are eliminated. Of course, even in a Chapter 7 liquidation, this grim scenario never plays out quite so harshly thanks to generous exemptions, and Chapter 13 Bankruptcy is an entirely different option altogether. Not only are those going through a Chapter 13 case free to retain all personal property, their debts are restructured, consolidated and, after a three to five year term, often discharged completely.

Chapter 13 Repayment Plan

Chapter 13 is sometimes referred to as individual debt adjustment. It is a court-facilitated debt repayment process.

Each debtor who goes through Chapter 13 files a repayment plan for approval by a bankruptcy court. Under every repayment plan, a debtor will make a single periodic payment to their Chapter 13 trustee, who will then distribute funds to creditors according to the terms of the plan.

The payment amount depends on factors like the debtor's ability to pay, the amount owed and the type of debt (to make the plan workable, payments are typically lowered). A Chapter 13 repayment plan lasts for a term of three to five years. At the end of the term, any remaining balance on most types of debt is discharged (significant exceptions include long term obligations like a home mortgage or student loans).

Who Is Eligible?

Only individuals with unsecured debts less than $360,475 and secured debts below $1,081,400 may file for Chapter 13 bankruptcy (these amounts are adjusted from time to time to account for inflation). Furthermore, barring exceptional circumstances, anyone filing for Chapter 13 bankruptcy must receive credit counseling from an approved agency within 180 days before submitting a bankruptcy petition. To be successful in a Chapter 13 plan, some form of regular income is also required.

Advantages of Chapter 13

By filing a Chapter 13 case, home foreclosure is automatically halted (as well as collection efforts on other types of debt), and homeowners are given the chance to cure delinquent mortgage payments over time. As mentioned above, rescheduling debts under a Chapter 13 plan can mean lower payments, Chapter 13 participants generally keep all their property if they so choose and most types of debts are eliminated at the conclusion of the repayment plan.

If you are feeling overwhelmed by debt, Chapter 13 bankruptcy could have a lot to offer. Consult an experienced bankruptcy attorney today to explore your options.